Salary definition for calculations of Gratuity,HRA, EPF and Leave Encashment

Salary consists of so many components like Basic, DA, HRA, Bonus, Commission, Allowances and Perquisites. But while calculating Gratuity, HRA,  EPF and value of perquisites for rent free/concessional house we need to consider  only few components of salary. So let us look into detail about those considerations.

1) Salary definition for Gratuity

A) Gratuity covered under Payment of Gratuity Act 1972-For this purpose salary means only Basic salary and Dearness Allowance (DA). No other salary components will not be considered for calculaiton.

B) Gratuity not covered under Payment of Gratuity Act 1972-For this purpose salary means  Basic salary, Dearness Allowance (DA) and Commission (if paid as a % of turnover).

Remember while considering salary in the case of  (B) Gratuity not covered under Payment of Gratuity Act 1972 DA need to be considered only if it is forming part of retirement benefit otherwise not to consider. Also Commission should be in the form of % of turnover not lump sum payment.

2) Salary definition for House Rent Allowance (HRA)-For calculation of House Rent Allowance (HRA) you need to consider Basic Salary, Dearness Allowance(DA) and Commission (if paid as % of turnover).

Again in this case too DA need to be considered if it is forming part of retirement benefit otherwise not to consider and Commission also need to % of turnover.

3) Salary definition for Employee Provident Fund (EPF)– For calculation of salary components under employer’s contribution towards recognized provident fund too we need to consider the same salary components of HRA i,e Basic Salary, Dearness Allowance(DA) and Commission (if paid as % of turnover). Also the above said conditions of considering DA and Commission too will apply here also.

Click here to see updated meaning of salary for calculation of EPF contribution.

4) Salary definition for Leave Encashment-In this case also you need to consider the same salary components as you considered for HRA and EPF.

5) Salary definition for rent-free/concessional house perquisite valuation-Below salary components are considered while calculating the valuation of perquisite.

a) Basic Salary;

b) Dearness Allowance (if terms of employment so provides);

c) Bonus;

d) Commission;

e) fees;

f) All taxable allowances (excluding amount not taxable); and

g) any monetary payment which is chargeabble to tax (by whatever name called).

But it does not include-DA if not considered for retirement benefits, employer’s contribution to provident fund account of an employee, all allowances which are exempt from tax, any lumpsum amount received like Gratuity, Leave Encashment, VRS or Commutation of Pension and value of perquisites (under section 17 (2)).

Hope I simplified the Salary definition for the calculation of above facilities. 

178 Comments

  1. Dear Sir, Our Company compulsorily pays us leave salary on March 31st each year. Should such encashment of leave salary form part for salary for the purpose of calculating Exempt HRA. Reasons for this doubt (1) Leave salary is neither an allowance nor a perquisite but part of salary (2) It is compulsorily encashed and paid to us us each year ; can not be carried forward and hence can not lapse ; hence there is certainty of payment unless of course if we do avail of all leaves. (3) however since Leave salary rules can be different for different organisations and payable only in case the employee has not taken any leave then it does appear like a perquisite and should not form part of Salary for calculating HRA. Your views please

    Reply
  2. how to the private concern has decieded to give the every monthly salary has converted to 26days related of graduty rule

    Reply
    • Dear Selvi,
      It is the rule and as per that they have to follow.

      Reply
  3. my company has kept the basic salary unchanged for more than 10 years and increased only the composite allowance to reduce the gratuity liability is it legal. the com. allowance is almost 5 times the basic salary now. where can we represent this.

    Reply
    • Dear Bindu,
      This is how many companies play with. Sadly you don’t have any options.

      Reply
  4. Sir, I am working 4Y 9M 14D I am eligible for gratuity or not and gratuity is applicable for basic salary or gross salary

    Reply
    • Dear Mohit,
      Yes, you are eligible. Please refer above post to understand again about which part of the salary be considered for calculation of gratuity.

      Reply
  5. Can we have two different Basic Wages i.e. one for PF and other for Gratuity Computation

    Reply
      • Sir I’ve worked in one of the institution for 6 years 5 months ( 1st May 2003 to 30 th September 2009) I was not given my gratuity so I claimed it now after 10 years
        Now they have give gratuity for 6 years
        Am I eligible for interest for these 10 years
        If yes what will be the rate of interest

        Reply
        • Dear Vaneesha,
          As per me, there is no such concept of interest for delay. However, if you got it late by employer fault, then you can claim for compensation.

          Reply
      • How to calculate gratuity
        Is it on basic salary
        Gross salary or net salary

        Reply
  6. I joined a company in 1- Feb- 2015.

    a) If I leave the company on 30-Apr- 2020, will I get gratuity, given that:
    – I worked part-time for 6 months during 2014 with 50% salary.
    – I have taken a continuous (paid) leave for 1.5 months in 2015.

    b) If I leave the company on 15-Jan-2020, will I get the gratuity (considering point (a) above)?

    c) If I take an LOA (Leave of Absence) for 3 months in 2019, during which I will not get salary and leave the company on 30-Apr-2020, will I get gratuity (considering point (a) above)

    Reply
    • Dear Vijay,
      a) As per me, if your part time tenure is also equal to the time of work of a regular employee, then your such part time tenure is also considered for gratuity. Otherwise NO. Regarding the leave, it is the paid means no worries. If the leave is without pay, then it is considered as absence.

      Reply
  7. Hello sir,

    I was working for one of the india based organisation for more than 5 years and I had resigned from my designation in March 2016.

    That time, i was in argument regarding my gratuity but they have denied with the reason that they don’t have any policy and even they are not considered gratuity as a part of my package which was offered.

    Can you please provide information on the company’s response. In which case company can denied to give gratuity as I completed without any single allegation against me and can i take any legal action against the company in case the company is fooling me and many more who all are working day and night for them?

    Requesting your valuable input as I am fed up with their illogical answers.

    Thanks and Regards

    Reply
    • Dear Rahul,
      As per the Payment of Gratuity Act 1972, it is mandatory for all establishes to provide Gratuity facility, where the employee strength is more than 10.

      Reply
      • Thanks for your valuable reply and time.
        Request you to kindly guide me process to file a complain against my previous organisation?

        Reply
        • Dear Rahul,
          You have to knock the concerned office for the same.

          Reply
  8. Can one include Grade Pay ( in case of a lecturer in Govt. Polytechnic in Maharashtra) in the salary for the purpose of calculation of HRA? So can it be a total of Basic plus Dearness Allowance & Grade Pay?

    Reply
  9. Hi sir, I have basic pay-15500 , HRA- 7500, conveyance – 2000 & other allowances- 18750.
    I have passed 5years 2 months.
    To caliculate my gratuity, conveyance and other allowances- will come under D.A. Because they have not stated any D.a. directly.
    Please give your valuable suggision

    Reply
    • Chandra-Conveyance and other allowances are not considered for DA.

      Reply
      • Dear Sir,

        Can you pls share any supportive documents like : Case Laws or section for above which explain definition of Basic +DA for Gratuity payments.(Sec.2(s) “wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which arc paid or arc payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.)

        Reply
  10. In My Payslip , There is 2 sections Earnings and Deductions.
    In Earnings it shows the Following:
    1. Basic Salary
    2. HRA
    3. Conveyance allowance
    4. Medical
    5. Special allowance

    So from the above earnings what are the earnings considered for Gratuity Calculation

    Reply
      • Ok Thank you for your reply

        Reply
  11. what is the number twenty six as divider in gratuity calculation

    Reply
  12. If every month any one is getting the variable monthly commission besides his basic salary then is it considerable the monthly commission to calculate his gratuity payment at the time of his leaving the job as per the 1972 act of gratuity payment ??

    Reply
    • Ashok-Such commission will not form the part of the salary for Gratuity Calculation.

      Reply
  13. How much or what portion of the salary (Pay, Grade Pay, DA, Hill Compensatory Allowance…) one needs to repay as per the bond executed to repay the salary (with interest) received during a foreign training period if resigned within stipulated 3 years?

    Reply
  14. If someone is getting more than Rs 21000 as total salary but he wants to get the benefits of ESIC then is there any way to get it?

    Reply
  15. Sir, In Initial Salary slip Shows DA But Recent Slip Not Showing DA . Am I Eligible For Gratuity on Behalf of DA?

    Reply
    • Mehra-I am not sure how can your salary component disappear suddenly. First, check with your employer for this.

      Reply
  16. Sir,

    By profession, I am a Retina Specialist working with one NGO Trust Hospital since last about 12 years. During 2008 I was designated as Medical Coordinator and subsequently elevated as Director (Medical Services). My remuneration is paid by transferring funds at my bank account [Total amount showed as SPECIAL PAY by deducting 10% TDS]. I have since been proposed to relocate to hyderabad, I had tendered resignation (2months notice). According to the prevailing practice, employees leaving the institution have been paid ” BASIC ONLY ” by not considering “SPECIAL PAY”. In my case total remuneration that I have been receiving was shown as SPECIAL PAY. Please advice whether I am eligible for Gratuity? dr.skr –

    Reply
    • Dr.Suresh-In your case the salary component of Basic and DA are not present. Hence, you are not eligible for Gratuity.

      Reply
  17. I AM IN A PRIVATE COMPANY AND COMPLETED 24 YEARS. I AM GETTING BASIC+FDA+VDA…SO HOW MY GRATUITY WILL BE CALCULATED? BASIC+???

    Reply
      • DA will not be taken? why? Please explain

        Reply
        • Sir, my present salary….Basic -8784, Fixed Dearness Allowance-12515, Variable Dearness Allowance-4748….

          I have completed 23 years in a private company.

          Can you please calculate my Gratuity if I quit the job now?

          Reply
          • Sri-Please take the pain and calculate on your own. I can’t do this task for all.

            Reply
            • Ok sir, I have asked your help since two types of DA is given…which I have to take or both DAs +Basic…please advice..I will calculate

              Reply
  18. Dear Sir, I worked for a compnay for 7+ years and left, its almost 6 months since I left my company and have sent many mails on clearance of my gratuity but no response from management. How should I go forward in this case.
    Please let me know.

    Thanks,

    Reply
  19. Sir,

    If NO DA is mentioned in Salary Structure and other allowances mentioned…. than what will be taken for gratuity calculation purpose.

    Kindly explain.

    Reply
  20. My company is providing following salary structure, in which gratuity is fixed to 1389. I should also get gratuity according to the law as per formula. Please guide me. I have completed six years.

    Basic Salary is 15195
    DA is 13676
    Gratuity is shown in salary structure 1389.

    Reply
  21. While calculating gratuity if DA is given and of that part suppose 60% ia for retirement benefit so why we take whole DA instead of 60%

    Reply
    • Vyankatesh-If that is particularly defined as “% of todal DA be part of retirement benefit”, then you no need to consider 100% DA.

      Reply
      • If covered by the Payment of Gratuity Act, 1972 then the entire DA is to be taken into count, irrespective of whether it forms a part of retirement benefit or not. Hence, DA is taken at its full value. However if not covered under the Act, then DA which is forming a part of the retirement benefit only is to be considered.

        Reply
  22. If DA is given in percentage and nothing is stated whether DA wil enter for retirement benefit or not..
    Should we consider it for Retirement Benefit???

    Reply
    • Karthik-If DA is present in your salary (whether in terms of % or lump sum), then you must consider it.

      Reply
      • For the calcuation of gratutiy Not covered..we consider DA(if it enters for retirement benefit).
        If DA is given in % and no info is given whether DA enters r not)..should we consider it???and why??

        Reply
        • Karthik-If DA is considered as part of retirement benefit (whether % of not whether defined or not), it does not matter.

          Reply
  23. Respected sir,

    How da and dp calculate in both retirement benefit and also eployement benefit,varities calculation in salary calculation please explain clearly

    Reply
  24. sir pf calculate on Basic + Da include Special allowance or not please tell me

    Reply
  25. If an employee paid 5 lac Leave encashment and 3 Lac is exempted , while computing Prerequisite on free accommodation 2 Lac Leave encashment (3 Lac Already exempted) which is taxable will come in the salary to calculate CLA or NOT.

    Reply
    • Durgesh-I am unable to understand your question. But as per me, leave encashment of Rs.2 lakh is taxable salary income for you.

      Reply
  26. IF NOTHING IS SPECIFIED IN PROBLEM ABOUT DA FORMING PART OF SALARY THEN WHAT IS THE CONSEQUENCES IN COMPUTING SALARY IN HRA

    Reply
  27. Dear sir
    I want to know that how to calculate the gratuity amount if employee demise in between their service. Employee had completed 32 years and comes under U.T. government. kindly revert.
    Thank you.

    Reply
    • Bidya-The formula is same as used for regular gratuity calculation.

      Reply
  28. Sir, why is the definition of salary different for every other thing like gratuity, epf, hra etc?

    Reply
  29. hi basu,

    pls let me know the % in my salary they hav made
    basic 6000
    Da 4500
    HRA 3000
    Conveyance 1500
    Pf 1260

    how much pf%,hra%,da% they hav deducted.

    thanks

    Reply
    • Rajesh-Go by definition of each part of above post, you can easily calculate it. If you have doubt, then let me know.

      Reply
      • basic 6000
        Da 4500
        HRA 3000
        Conveyance 1500
        Pf 1260

        DA dearness allowance
        hra house rent allowance
        pf provident allowance ( deducted)

        Reply
      • DA dearness allowance
        hra house rent allowanc

        Reply
          • how hra, pf and da is calculated as per my basic pay

            Reply
              • I need to know how much % they have deducted, what is the calculation.

                Reply
                  • I m not getting pls show the calculation and help me

                    Reply
          • Sirr what is HRA exemption calculation??
            &
            Medical tax exemption??

            Reply
            • Neeraj-HRA is explained here. For calculation, you can refer IT portal. Medical Tax Exemption means?

              Reply
  30. Sir, I am teacher working in zilha parishad in Maharashtra. My total service is 5years & 5months..now i just resigned….Am i eligible for getting graduity ?

    Reply
      • Sir,
        clerk in Zilha parishad pension department says “minimum 15years service required for claiming graduity.”
        What should i do?

        Reply
  31. Sir,I have 4 lakhs saved money and after 6 months ill be having another 5 lakhs. My needs are two -first car( alto) and second house. how to utilize my money for both. I am thinking to purchase car without going for CAR LOAN, so that i dont get on to the obligation of paying EMI and ill be left free to pay EMI for home , in case i take it. Plz provide your valuable suggestions.

    Reply
  32. Sir ,in under covered gratuity act 1972 , basic salary means ????

    Reply
  33. I want to know about pf,pt,tds, bonus , esci, payroll – calculation methods and details.

    kIndly reply as i want prepare for inteview.

    Reply
    • Shyam-I am not expert in HR issues. My expertise is personal finance.

      Reply
  34. after increment salary goes more than 20k, now employer started deducting both PF contributions from my salary. previously it was not like that. When I asked they said if your total salary is more than 20k then it is as per rule. also they are not showing it in a salary slip, my salary slip shows total earnings 18700. as per appraisal letter total earnings should be 20500.
    is there any authority where I can complaint about this.
    waiting for your reply.
    Thank You.

    Reply
    • Ait-Raise the issue online by visiting EPFO Grievance portal.

      Reply
      • pls share the link for the same.

        Reply
  35. Hi Basavaraj,

    Can you please clarify if the supplimentary allowance be treated as dearness allowance for gratuity calculation purposes?

    Thanks in advance
    Eswar.

    Reply
  36. Hi,
    As I check my salary slip there are no DA in my salary slip, and I want to know about my DA so request you to kindly advise how will i calculate my DA.

    Suppose my salary is 15000 and basic salary is 6500 so what is the DA?
    And How can I calulate my DA?

    Reply
    • Ankit-If there is no DA part in your salary then it is not provided by your employer. It is not mandatory that one must have DA.

      Reply
      • Hi…

        can you please explain what components should be included in salary for the purpose of calculation of voluntary retirement scheme

        Reply
          • Thanks……….another query is that for calculation of EPF should we take DA including retirement benefits and commission as % of turnover for contribution of both employee and employer……….because in my notes nothing such information is provided.

            Reply
            • Kunal-Yes, you have to take the same for both employee and employer EPF benefit.

              Reply
              • Thank you………..actually I am preparing for CFP exams and have cleared insurance and investment module………..now preparing for retirement module…………..have some doubts if u can help me clear it…………if I invest 100000 in PPF on 1st april every year @ 8.7% then the amount which I am getting on maturity is 3117275. If I invest the same amount i.e 100000 at the end of every year on 31st march then the amount I am getting on maturity is 3217275. I wanted to ask whether the answers given by me are correct or not and if not kindly guide me. Also if we invest the same amount at any time in the middle of the year and continue it till the end then how much we would get on maturity.

                Reply
  37. If the increment of rs 500 is being paid every once in a year, will it be added in calculation of average salary?

    Reply
  38. Wow sir I being a cwa student appreciate your effort to create clear understanding among people

    Reply
  39. Sir,
    I want to know that during the calculation of Bonus and Gratuity whether HRA will be a part of calculations components.

    Reply
    • Asim-Bonus calculation is entirely left with your employer. However, in case of Gratuity HRA will not be part of salary.

      Reply
  40. I am a senior resident working in a govt hospital. I have a tenure of 3 yrs and wont get any retirement benefits. Shal i include my DA in my basic while calculating HRA. Also does HRA includes NPA

    Reply
    • Raj-What retirement benefits you are expecting? You can’t add on your own. The definitions are already provided above. Please go through them.

      Reply
  41. I came across your blog. Very interesting. I think you can help me. I am 60 years old and running a traditional business.
    I need to expand and think HR is should be given top priority. I need to structure the pay roll for growth. If an employee deserves he should get it automatically. Therefore effective HR policy is required. Please help me formulating growth oriented pay structure and HR policy.

    Thanks

    Reply
  42. After retirement, I can withdraw full PF amount or can keep a sum (say Rs.one lakh) there and withdraw the rest.
    If the sum is kept for a specific period (say 1 year) I am told that an enhanced rate of interest( say 9.17%) for the whole PF amount will be applicable else the interest accrued will be low (say 8.33%).

    Is there any truth in it, or if there be, please educate.

    Reply
    • IG-I don’t about the conditions you are saying. Please share the source.

      Reply
  43. sir, basic 9530 hra 2338, cca500, transport 300 conv 500 medical 794 lta794 total exp:9yrs 6months please calculate total gratutrity amount by hand .please request calculate amount

    Reply
  44. DA is not a part of my salary, then how do i calculate my gratuity

    Reply
  45. Most of the IT sectors, break salary component into Basic, HRA, TA, Special Allowance & Shift allowance, Individual performance pay etc. In this case, how do you calculate DA?

    Reply
  46. sir can you tell me what % basic on salary to be taken for gratuity calculation.

    Reply
  47. IN RAJASTHAN – CIRCULAR OF MINIMUM WAGES STATES – ALL ALLOWANCES PAYABLE ARE CONSTITUTE WAGES.

    CAN WE BIFURCATE MINIMUM WAGES INTO DIFFERENT COMPONENTS AS PER OUR CHOICE TO MINIMISE IMPACT OF PF CONTRIBUTION.

    Reply
    • Laxminarayan-It is state issue of defining salary. But for EPF, it stands as I said above.

      Reply
    • No, Minimum wages cannot split by different connotations. Basic salary is as full minimum wages. We have to go by the definition of Fair wage, minimum wage and living wage.

      Reg,

      K N Banerjee

      Reply
  48. If the official is in rent free quarters he is not getting HRA. However in leave encashment he is elegible or HRA or not? pl clarify me

    Reply
    • Manjunath-What is a link between free quarters or HRA to leave encashment?

      Reply
  49. Hi Basu Nivesh.

    I am an employee of BPO. I am leaving my current company as I have now completed 7years and 7 months. So now I want to know that how my gratuity amount be calculated? For example: My last drawn salary is Rs. 10800/- due to health issues other it get fluctuates and I don’t what is considered out of this in Dearness allowance. Break up is BP – 4000, HRA – 2000, Medical Reimbursements – 1250 and Special allowance – 11194/-. After all this my guaranteed pay is 18444/-. Apart from this I have Performance Linked Incentive/Bonus – 1844, PF -Employer contribution – 480, Gratuity – 192, Insurance premium – 620, Retirals & Benefits – 1292. After which the Target Total Compensation – 21580/-

    So now please let me know what will be gratuity amount that I would be getting from my company. Please reply ASAP.

    Thanks and Regards,
    Shridhar B Panchal.

    Reply
    • Shridhar-Salary meaning for calculation is only Basic+DA, but not all other components you mentioned.

      Reply
  50. how calculate indian Gratuity act & method

    Reply
    • Sandeep-It is as below.
      (15/26) * Last Salary Drawn * Completed years of service

      Reply
      • Its basic pay you mean? Please clarify causeif I am to calculate gratuity I am not certain what should be considered as DA allowances…I get Ex-gracia..conveyance…HRA…medical reimbursement…. other allowances and attire allowance….I have served 8.5 years…

        Reply
  51. Sir,

    Adoc allowance is a part of my salary slip break up, Kindly tell me Adoc allowance will be either include or not for calcution of Gratuity/leaveincashment/PF/HRA.

    Reply
  52. sir
    salary for the purpose of HRA as given above is wrong
    it does not include DA and comission at all

    Reply
    • Manash-As per my understanding it is correct. Please let me know the source of your knowledge.

      Reply
  53. Sir,

    1. I am working in a Mining Industry for the past 10 years these days what i thought for calculation of Gratuity is Last Salary Drawn X 15 X No of years of Service / 26 is this correct or wrong

    2. Now i want to know is there any new law for payment of Gratuity for which only Basic & Other allowances are to be considered

    3. in our company our payment terms are like this Basic & other Allowance (DA, HRA, Washing Allowance etc.,) but now a days we came to know that apart from above mentioned column there is another column which doesn’t cover under the payment of Gratuity. is there any such kind of column

    4.during the increment of April 2014 we came to know about that as there is new column is arrived and the total increment is mentioned that column, by some other sources we came to know that only March 2014 Salary is considered for payment of gratuity and the rest the value which is mentioned in the Third column is not considered for payment of Gratuity

    Kindly Clarify the above mentioned points at the earliest. the matter is urgent

    Reply
    • Rajshekhar-1) It is on last drawn salary. 2) No the definition is same as above. 3) No such column for gratuity calculation apart from the said formula. 4) I am not aware of what you are mentioning as “Column”.

      Reply
  54. Sir if
    Total Salary is Rs. 100 per month(Basic: Rs. 50/,HRA: Rs. 25, other allowances: Rs. 25)
    If an employee is having 7 days accumulated leave
    Kindly let us know how much amount Company has to pay?

    Reply
    • ASD-It depends on policy of the company. If it is 7 days then divide all benefits by 30 days and then multiply them by 7.

      Reply
  55. thanq very much sir for your information iwas very much confused till i read your article

    Reply
  56. Does salary for RFA includes salary from more than one source?
    I mean to say if Mr. X Employed with A ltd. & B Ltd. and A Ltd. provide him RFA then at the time of calculation of salary for RFA , does it include the salary of A Ltd. and B Ltd.? If yes, then what are the items of B ltd. we should include in calculating salary for RFA. Please Clarify

    Reply
    • Rohit-Can you clarify how Mr.X can be employed by two employers? Is you are saying about part time jobs or fultime? I am bit confused with your question. Can you elaborate more specifically about your doubt please.

      Reply
      • sir, I am talking about part time.
        Sir I have situation 2 also- in P.Y 12-13 Mr. X Retired from from A Ltd. and on the same P.Y he joined B Ltd, and B Ltd provides him RFA then in this situation should we take the salary of A Ltd.also to calculate RFA?

        Reply
        • Rohit-Not required.

          Reply
  57. Dear Mr. Basu,

    If house property is in the name of one brother, whether it can be shared with other 2 younger brothers after entering into a deed of family arrangement and whether it can be got registered. If answer to this is in negative, please inform whether the best possible course is to make a gift of 50% shares to younger brothers (@25% to both). In such case whether gift deed is to be got registered and also the 50% share in the property will have to be registered by them. What will be the total rate of stamp duty or tax applicable in that case.
    KK Sarawagi

    Reply
    • K.K.Sarawagi-Your query seems to be more legal than personal finance. Hence I request you to consult a lawyer on this issue.

      Reply
      • In ‘taxguru’ site yesterday there was an article by Mr. R. Kumar on family agreements with regard to sharing of property. As I received one query in this respect from my colleague, I forwarded the same to him as well as to you.
        O.K., in any case, he will seek legal assistance in the matter. At the outset, I have said that deed of gift will be the best option.

        Reply
        • K.K.Sarawagi-I know that gift deed is best option. But I plainly not give you advice and I am not the legal expert. Hence advised you to consult a lawyer.

          Reply
  58. The employee is eligible for 60 days leave & he is taking 15 days leave only & he has given a leave settlement of two months BP+HRA+DA.After 15 days when he joins is it necessary to give him HRA+ DA for the leave settled months again on salary time with BP.(Or in encashment of leave salary is it necessary to give HRA & DA)

    Reply
    • Rebi-For calculation you are considering only Basic+DA so no question of HRA.

      Reply
  59. Director is employee of company and I feel commission received as fixed percentage of net profit is salary, however, it should not be considered for the purpose of calculating exemption of HRA u/s 10(13A) read with Rule 2A since it is in the nature of contingent receipt which matures only after the end of the financial year. Hence, Salary for this purpose has to be read within the meaning of Rule 2(h) of Schedule IV of the I.T.Act. Please inform if I am correct otherwise I request you to please provide some judicial ruling in this respect.

    Reply
    • K.K.Sarawagi-I agree with your points. It specifically mentions that 1) component from employer should be in the form of HRA but not as % of commission 2) You need to be rented. So both the conditions will not get satisfied. Hence we can’t consider this as HRA.

      Reply
  60. CORRECTION OF MISTAKE IN ABOVE COMMENT:
    Please read “accommodation owned by the company” instead of “accommodation owned by the director”.

    Reply
  61. Whether commission payable to Director of company as fixed percentage of net profit shall form part of salary for calculation of perquisite for providing rent-free accommodation owned by the Director. Similarly, whether salary for the purpose of calculating exemption of HRA u/s 10(13A) would also include above-stated commission.

    Reply
    • K.K.Sarawagi-If director is employee of company then commission payable to director is considered as salary otherwise this commission will be treated under the head either of Income from Business or Income from other source depending on the facts.Now rent-free accomodation benefit will be treated again as a perquisite if director is employee of company and same case applies to HRA also.

      Reply
  62. if employee retired on Feb.13 and leave encashment paid in April 2013 then taxable encashment calculate as per slab of 2012-13 or 2013-14 ?

    Reply
    • Vikram-It will be for 2012-13. Because employee worked in 12-13 but not in 13-14.

      Reply
    • Basis of charge in respect of salary income is fixed by section 15. Salary is chargeable to tax either on “due” basis or on “receipt” basis, whichever matures earlier.

      Reply
  63. Its interesting to note that in the Salary definition for rent-free/concessional house perquisite valuation, the author has mentioned that Leave Encashment should not be considered. But, Leave Encashment is of two tyoes – 1. Leave Encashment during the service period which is fully taxable and 2. Terminal Leave Benefit at the time of separation from active service. I want to know which Leave Encashment does the author refer to.

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    • DAvid-In my view leave encashment during the period of service.

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    • i also like to know the same…

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      • Gautam-Please refer my above comment.

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  64. What do u mean by DA?Is there any difference between HRA & DA.

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    • Krish-DA stands for “Dearness Allowance”, this is the allowance your employer will pay considering the cost of survival. HRA is limited to your house rent. So both are different.

      Reply
  65. This information was useful. your blog is very informative

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    • Martin-Thanks 🙂

      Reply
  66. whether DA is to be considered or not for HRA purpose if it is clearly not mentioned that it forms part for retirement benefit…???

    Reply
    • Ankush-It need to be mentioned then only we need to consider.

      Reply

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